Progressive Capitalism: How to Achieve Economic Growth, Liberty and Social Justice
Biteback, 256pp, £20
This book is equally important for what it says and for who is saying it. The argument that growth, liberty and social justice require a fundamental reform of capitalism is rapidly moving from the left to the mainstream; and nothing symbolises this more than that David Sainsbury, the epitome of the progressive mainstream since his days in the vanguard of David Owen’s SDP in the 1980s, should be making it.
It is a powerful and cogent critique. Sainsbury was an effective science minister under Tony Blair who greatly increased state support for science. However, he writes: “It was only after I left government . . . that I began to question fundamentally the neoliberal political economy which had dominated governments in the western world for the last 35 years.”
Partly this was because of the 2008 crash and a growing conviction that competitiveness required a “race to the top” – not neo - liberalism’s “race to the bottom” – with state support for employment, innovation and skills. But there was also a telling personal dimension: the private equity takeover bid for his family firm, Sainsbury’s, in the summer of 2007. “There was not the slightest pretence of trying to improve the performance of the company,” he claims. The bidders proposed “to sell off all the properties and replace them with massive debts. Then they would put the company back on the market . . . and walk away with £1bn of profit.” The City was wildly keen, salivating at the £100m in fees the investment banks stood to earn: “a perfect example of wealth appropriation as opposed to wealth creation”.
The policy prospectus set out in the second half of the book is a must-read for anyone seeking to make sense of that new catchphrase “active industrial policy”. Sainsbury recommends far-reaching reform of equity markets to foster the creation and expansion of companies rather than their destruction and foreign takeover; a “national system of innovation” with the state as a key player; and a revolution in technical and vocational education that emulates German strength in these areas, although he warns against copying Germany glibly.
On equity markets, he favours a big cut in the fees paid to investment managers and a new “Shareholders’ Advisory Board” to promote “an understanding of the fundamental value of the companies in which [the City] invest[s]” rather than their short-term trading value. Investment managers should also get far more involved in the governance of the companies they own, including the appointment of directors and holding them to account, and constrain the boardroom pay explosion which shows little sign of abating. A wildly overpaid City breeds a wildly overpaid corporate sector.
Sainsbury is especially bold on takeovers. He proposes higher “hurdles” in shareholder support required from within the target company, and restrictions on those who can vote to those who have held shares in the target company for “a certain number of years”. This goes way beyond the 2012 Kay review of equity markets and long-term decision-making.
On innovation, Sainsbury supports the coalition’s establishment of Catapult Centres – national technology and innovation hubs in key industrial sectors, starting with highvalue manufacturing – but he favours more support for new technologies. Government departments should have “embedded R&D units” to promote technology and innovation on a strategic long-term basis; and regional development agencies – abolished by the coalition in 2010 – should be restored “in parts of the country which need them”.
A dramatic increase in the supply of technicians, especially with engineering skills, is Sainsbury’s goal for a revamped education and training system. Kenneth Baker’s new breed of university technical colleges for 14- to-19-year-olds should be expanded and local industry integrated in the management of further education. Some would go further and seek to introduce an English equivalent of Germany’s “dual system”, whereby employers and local authorities take joint responsibility for a system of mass apprenticeships with highquality vocational training alongside. But Sainsbury does not think this feasible because of the weakness of Britain’s chambers of commerce, trade associations and trade unions in comparison with Germany.
Sainsbury would pioneer reform through an “enabling state”, rather than through a return to “command and control”. But an enabling state is not a smaller state. “A first task of progressive politicians is to persuade people of the importance of competent and active government, standing above sectional interests,” he writes. This, conceptually, is a return to mainstream social democracy after its partial abandonment in recent decades. It cannot be achieved without a transformation in the capabilities of government, including a new national economic council and a much more purposeful civil service.
Sainsbury also puts in a heartfelt personal plea, from a public-spirited party donor caught up in party funding controversies, for state funding of parties so that governments of both parties are better able “to stand up to the financial power of interest groups”, be they trade unions or investment managers and bankers.
A decade ago, this prospectus would have seen its author branded “Red Sainsbury”. Now it is pretty sensible and mainstream. A new centre ground is being forged.
Andrew Adonis is the author of “5 Days in May: the Coalition and Beyond” (Biteback, £12.99)